China is NOT on the US Treasury list of 47 countries negotiating over FATCA

The Treasury Department has already concluded a bilateral agreement with the United Kingdom. Additional jurisdictions with which Treasury is in the process of finalizing an intergovernmental agreement and with which Treasury hopes to conclude negotiations by year end include: France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway.

Jurisdictions with which Treasury is actively engaged in a dialogue towards concluding an intergovernmental agreement include: Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden. Treasury expects to be able to conclude negotiations with several of these jurisdictions by year end.

The jurisdictions with which Treasury is working to explore options for intergovernmental engagement include: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Sint Maarten, Slovenia, and South Africa.

*So what does this mean for banks in Hong Kong? To what degree will HK’s global banks comply with FACTA? (I assume they have to comply either way, regardless of the HK gov’t having a bilateral agreement with the US, no?)

It’s worth noting that the part of FATCA where Form Nation wants to invade the sovereignty of other nations is dead. The move toward bilateral agreements is proof of that. To date only the UK has signed on. Of course the part of FATCA – form 8938 – which is aimed at US citizens abroad continues. That is the part that will continue as the US uses it to extract penalty revenue from the middle class expats abroad.

With respect to foreign governments, it seems to me that the omission of either Canada or China will set an example for other nations.

China: why would they cooperate? The US owes them too much money. I see no way the US can intimidate them.

Canada: this is the single most important country. If Canada does not cooperate it will be:

“The shot heard round the world”.

My prediction: when it’s all said and done, FATCA will just mean form 8938 and the continued abuse of US citizens abroad.

I have to wonder how much this Treasury Press Release is aimed at Congress, to make it appear that the FATCA Freight train is too far down the tracks to reign in. Congressman Reichert, and the rest of you recalcitrant Congressmen, will have to live with DATCA.

The FATCANATICs need to get this cemented into a GATCA before more Congressman wake up and realize that the IRS has repatriated the cost of FATCA back onto the homeland shores.

Of course, it is also aimed at Homeland evading whales, message being that you better come into the OVDP quickly, Finally, to other Countries who are not in the fold, that you better join up, and give your FFIs subsidized IGA relief spread out onto all your tax payers.

@Renounce, you said “the part of FATCA where Form Nation wants to invade the sovereignty of other nations is dead. The move toward bilateral agreements is proof of that.“

I don’t understand your reasoning. They advertize IGAs as the way to prevent FFIs from breaking local laws. They still require foreign governments to amend their constitutions or create new laws to be able to send the required data. Foreign countries who sign that just don’t have balls, and they agree to that invasion. Because they agree to it, does that changes the nature of the invasion?

Fighting tax evasion is a good thing. But what really bothers me about FATCA is 2 things:

1) Its coercive nature (the incentive of the 30% withholding as they call it in the Georgetown University presentation). Countries who want to fight tax evasion don’t need that coercion.

2) the ridiculously low threshold. At $50K, who really believes that they’re going after tax evaders. I agree with Petros that they’re targetting expats and want to enforce citizenship based taxation. That’s shameful – a sign they’re desperate.

3) the bad faith of the US on reciprocity.

4) the uncertainty of what they do with the data. If the penalties weren’t so high and they were mainly interested in compliance, that would be one thing. But with their only recommended option being OVDI where they go back 8 years and confiscate 27.5% of ones’ networth, foreign countries basically agree to send names of people to be executed. There are laws that preveny that in most countries. If they go ahead with FATCA, foreign countries should force a reasonable “sentence” for those who they give the names.

Even if the way the US approached the problem with Switzerland was not the best, I think it makes more sense to go after know tax heavens (starting with those in the US), rather than trying to impose FATCA on every single country on earth, and have better cooperations with foreign countries under existing tax treaties.

The UK parliament’s International Development Committee, quoting the Tax Justice Network, Christian Aid and Glencore, has called for the government to ‘introduce legislation similar to the relevant section of [FATCA], requiring tax authorities automatically to exchange information relating to UK citizens or corporations. The government should also use its influence (via the OECD Tax and Development Task Force, and similar avenues) to persuade other governments to follow suit4.’

“How do the countries want to be FATCA compliant trade with China if China is not FATCA compliant?”

If I recall well, Bank of China gets a pass because they are a government owned bank. If all Chinese banks are govt owned, then I suppose that they all get a pass. I am not sure to what percentage the ownership has to be, but this was a graceful escape for the US. It’s like a robber walking into a bank with a pistol and shouting “everybody, except that big guy over there, put your hands up where I can see them!”.

Everybody agrees that FATCA as originally conceived is unworkable. So, the US is now trying the next best thing. Note, that “the next best thing” does (in so far as I understand it) obligate the US to provide information in a reciprocal way. As @JustMe notes this will put a large part of the cost of FATCA on US banks which will not be popular. In any case, as it stands, no matter what Form Nation says, it is in a position where it must negotiate individual deals. Right now they are saying the deals will be the same, but just wait … The US is a debt ridden beggar (they just don’t know it yet). The other thing about individual agreements is that countries will enter into these agreements only if they perceive it to be in their interest to do so. No doubt there will be a “coalition of the willing”. But, there will also be a number of countries that won’t. They will recognize FATCA as the opportunity to end the financial bullying of the US. They will lay the track for a competing financial system.

When it comes to China, there are two points that I believe to be true:

1. It is not in China’s interest to enter into an agreement with the US. Why would they? There is nothing the US can do about it. They owe China too much money. As John Templeton (one of the most famous renunciants of US citizenship) used to say:

“Those who spend too much will eventually be owned by those who are thrify”

2. It is specifically in the interest of China to NOT enter into an agreement with the US. Why? China wants to replace the US as the dominant financial power and get rid of the US dollar as the world reserve currency (I suspect a lot of other countries do too). China can lead a Gandhi style “peaceful resistance to FATCA” which will eventually result in an alternative financial system with the US being displaced as the dominant financial power. I wrote an earlier post on this topic:

Now, I am not saying that we will wake up tomorrow and this is what will happen. But it will. The US can’t force other countries to play with it in the Sandbox and if they do play with the US, the US must play nice. But we know that the US doesnt’ know how to place nicely. Humans always overestimate what they can accomplish in one year and underestimate what they can accomplish in ten years. Patience, patience, patience … Time is on the side of the thrifty. Time is on the side of those without debt.

Now there are some who believe that FATCA is a good and necessary thing (see some Todundsteur comments). Maybe it is and maybe it isn’t. But, the US cannot implement FATCA (it must be a multiple country effort) and cannot act in such a coercive (to use your word) manner.

The initial victims of FATCA will be US citizens abroad. As you know, US citizens abroad (and even those at home) are nothing but “road kill”. The subsequent victims of FATCA will be the US itself.

Where will all this lead? Here is an interesting video.

[http://www.youtube.com/watch?v=TYKAbRK_wKA]

Again, I am taking a long term perspective on this. The US is finished. They just don’t know it.

@The_animal

China has a growing economy. They also have nukes. But the nukes are irrelevant.

The US has a dying economy with tremendous debt. The only thing they have are nukes, which as I say are irrelevant.

Regarding Treasury’s announcement of negotiations with multiple countries, we need to see that there’s both more and less here than meets the eye. Consider:

Category 1 (additional jurisdictions, besides the UK, with which Treasury “is in the process of finalizing an intergovernmental agreement and with which Treasury hopes to conclude negotiations by year end”). Note that this consists only of:

France, Germany, Italy, Spain: The other four EU countries with which Treasury had already announced agreement in principle in February 2012 (and held up promulgation of the draft regulations until they could make the announcement).

Two other countries that have agreed in principle to non-reciprocal compliance: Japan (which uniformly bows to any and every US demand) and Switzerland (which for years has been beaten like a redheaded stepchild over bank secrecy but may not be in the bag to the extent Treasury would like us to think).

Canada: A special case, as we know – more about that below.

Mexico: Another special case, a country that in fact long has been begging for banking information from the U.S. due to the large volume of funds of criminal origin believed to be parked in the U.S.

Denmark, Finland, Ireland, the Netherlands, and Norway: weak European small fry who will do what the big boys do.

Guernsey, Isle of Man, and Jersey: If Treasury is on such a roll getting the world to sign up, why pad the list with Crown Dependencies that in the end will do whatever Whitehall tells them to?

Category 2 (“actively engaged in a dialogue”). Translation: We’ve talked to these guys and tried to convince them they have no choice but to sign up. Some have bought it, some are resistant to the idea and will wait to see what others do. “Treasury expects to be able to conclude negotiations with several of these jurisdictions by year end.” Translation: If we can get almost everyone in Category 1 to knuckle under, we’ll get a couple of these too, but the rest will have to be hot-boxed and threatened for a while.

Category 3 (“working to explore options”): This is an even more weasel-worded expression than “actively engaged in a dialogue” in Category 2. It can mean anything from “we think we’re wearing them down” to “they’ve told us No but we hope we can force them in once a critical mass is achieved and they feel isolated and vilified as ‘illegal tax havens,’ even if they’re nothing of the sort”).

But the purpose of this superficially impressive (but in fact rather meagre) list is to keep up the façade of FATCA’s inevitability: “Resistance is futile, you will be assimilated! See – we already have 50 countries!” Except they don’t. Right now, they have just the UK, maybe a dozen more (counting the Crown Dependencies probably) by the end of the year, if they’re lucky.

In short, we are lo-o-o-ong way from concluding that China and Hong Kong are the only holdouts.

So much for the less than meets the eye. Now for the more:

If I can mix my science fiction metaphors, this transparent mind trick is working at the moment, because there’s no one opposing it. As I repeatedly have noted, Treasury knows it cannot make FATCA work without the IGAs, but their intended targets are so terrified of the dubious threat of unilateral (non-IGA) FATCA they are willingly submitting to it by agreeing to IGAs, or at least considering it while they watch what other countries do. (This reminds me of Otto von Bismarck’s famous description of “preventive war” as comparable to committing suicide out of fear of death.) Even though it is Treasury that is in a race against time to sew up enough IGAs before they would have to bite the bullet on proceeding with a predictably disastrous attempt at unilateral enforcement, their targets seem to be falling for it, though not at the pace Treasury would like.

Above all, heeding the bard of an earlier empire quoted at the open of this message, Treasury is keeping their head and betting their targets won’t. So far, they are more right than wrong.

Which brings us back to Canada. Keep in mind that Canada would not be in Category 1 unless there were indeed significant, direct talks between Flaherty’s and Geithner’s people. In turn, on the Canadian side, this would not be taking place unless Canadian financial institutions and their associations – which publicly complain about FATCA and say they are not capitulating – were actively pushing Ottawa to cut a deal with the Americans.

Just from a cost point of view (lets leave aside for the moment trivia like national sovereignty), it’s hard to state how counterproductive this is from the point of view of the institutions themselves. Take a look at what they will be saddled with (under Art. 2(a) of the IGA, just mentally substituting “Canada” for “the United Kingdom”). Granted, the list of exempt institutions found in Annex II (the annexes are the only negotiable part of the IGA, the rest of the agreement is not!) would provide relief for certain institutions. But for most, their burdens would be very close – and hardly less expensive – than what Canadian institutions would face under unilateral FATCA enforcement by the U.S.

The really big “benefit” the IGA purportedly provides is that the American FATCA hand would be inside a Canadian glove: the Art. 2(a) obligations would be imposed not by the IRS but by the Canadian government enforcing Canadian law. Perhaps that’s of some psychological comfort and would involve some administrative streamlining. But looked as another way, from the impact on Canadian sovereignty, this “benefit” may be seen as a liability.

Back to Treasury’s Jedi mind trick, I emphasize once again Canada’s importance in Category 1. Above all, Treasury’s strategy is sequential and cumulative. The more and faster Treasury can rope in Category 1 countries, the better they can snowball Categories 2 and 3. Conversely, the loss of any one of the major Category 1 countries – and in my opinion, Canada is far and away the most important – could throw a monkey wrench (or up there, do you say “spanner”?) into the works.

*Just so all of you understand signing, ratifying, and implementing a treaty are all different things. Canada has “signed” treaties back in the 1930′s Legal of Nations time period that have never been ratified but never “unsigned” or denounced either. In Canada ratification requires a treaty be put before the House for 21 sitting days. However when a treaty requires changes in Canadian law it cannot be ratified until those changes have been made (This could be a while). In the UK for example there is currently an outstanding request for comments as to how they are going to implement this damn thing into domestic UK law. Basically as I understand HMRC really doesn’t even know how to write the UK Domestic legislation they need to pass into law.

The FATCA IGAs are not treaties, at least not from the U.S. point of view. (What they are in the Canadian constitutional system is something perhaps someone else can answer.) In answer to my question to Mr. Eggert from Treasury at the George Mason seminar, on the U.S. side these are Executive Agreements. This is not an entirely clear area of U.S. constitutional authority but it does mean the following:

First, on the U.S. side, the agreement will not be subject to the advice and consent of the Senate. Instead, Treasury plans to issue regulations on U.S. domestic institutions under Art. 2(b) under what it claims is existing legal authority. They would only come back to Congress if they planned to expand the scope of those obligations under Art. 6, as they have committed to our foreign “partners” but might in fact not do. So, while ours is not a parliamentary system, and the Legislative power is intended as check on the Executive, Treasury has tried to ensure they can move with a free hand without interference from any troublemakers in Congress. We’ll see if that works, which depends (as I keep saying) if anyone bothers to launch a standard lobbying and media campaign to thwart Treasury. So far, the answer is No.

Second, on the non-U.S. side (now with the UK, and intended with Canada), my understanding is that parliamentary authority would be needed to enact domestic FATCA-oid laws to compel the compliance in Art. 2(a). In principle, that gives people in Canada two bites of the apple: (a) to convince Ottawa not to proceed with negotiating an IGA, which in turn means getting Canadian banks, insurance companies, pension funds, stock and investment companies, etc., to stop asking them to do so; and (b) working to ensure that legislation to implement the IGA is not passed. However, since Canada, unlike the U.S., is a system where the Executive rests on a parliamentary majority, the latter might not be feasible.

These are steps as I understand to implement this type of agreement in the Canadian Westminister system

1. Pre-Approval of Treaty text by Privy Council Office and Treasury Board prior to signature. This piece takes at least six weeks between final text being negotiated and cabinet approval for signature.

2. Ratification after House Commons being notified for 21 sitting days(Because this type of agreement requires changes in Canadian law I don’t believe in this case it would take until the end of process. Notification of Ratification as I see it cannot be given until all domestic legislative changes are complete .

3. Drafting of implementation legislation by the Department of Finance and approval of legislative text by the Department of Justice Canada.(I believe HM Treasury and HMRC may be having problems right now at this stage dealing with the UK Attorney’s General Office)

4. Legislation put before either the Senate or the House of Commons(First Reading). One question is whether this would be buried in some type of Omnibus bill or would be standalone legislation. Omnibus legislation has lately been getting the governing Conservative Party of Canada into a lot of trouble. I personally think FATCA and omnibus are live wires no should want to cross in Ottawa. Notably the UK though has promised the US at least initially they will implement FATCA as part of omnibus legislation to prevent holdups in Parliament. I would also comment I don’t believe the legislative changes to implement FATCA IGA would at all be considered a “supply” vote as it does and will not actually raise funds for the Government of Canada. The governing Conservative can try to whip the majority in Parliament but again that might look easier said than done(The US House Republicans used to have a pretty strong whip operations too but no anymore).

5. Committee approval in both the House of Commons and the Senate.

6. Senate is free to vote down any legislation including supply bills without the Government falling.

It is better that this if it done is done as standalone legislation. If the government tries to push this through in omnibus bill we should raise hell. In the Canadian system it is easier to implement a treaty that does not require domestic law changes than in the American system. On the otherhand it could be argued it is MORE difficult to ratify and implement a treaty that requires extensive changes to domestic law. The US Senate by giving advice and consent essentially self implements international treaties. In the Canadian system both the House of Commons and the Senate must approve implementation legislation for any treaty requiring changes to domestic law.

It is hard to stop this at steps 1 and 2. Step 3 is really up to the legal staff at the Deparment of Justice(there are rumors I have heard that the UK is stuck at this step right now)

Steps 4, 5, and 6 are where the issue becomes politicized. I will note the current government has dropped several controversial pieces of legislation quite recently like hot potatoes once the discovered the amount of public opposition. Even in Canada’s Westminister Parliament the government cannot simply ram through legislation over public opposition.

I don’t expect Brazil, Argentina or Chile to agree. These countries blocked the creation of the Free Trade Area of the Americas (FTAA) a few years ago. They require visas from US citizens only because the US requires visas from their citizens. In fact, they make a point of charging the exact same fee for a visa as what the US charges. I think these countries will require exact reciprocity as a necessary condition for any agreement.

By the way, I noticed that the US only has tax treaties with five countries in the Americas: Canada, Mexico, Venezuela, Jamaica and Barbados. I suspect that it doesn’t have tax treaties with other Central and South American countries because they require reciprocity, and the US doesn’t do tax treaties without a saving clause, which is not reciprocal.

Also, Gibraltar, Lebanon, Malaysia, Seychelles and Singapore don’t tax foreign income, while Bermuda, the British Virgin Islands and the Cayman Islands don’t have income tax at all. These countries and territories would not gain anything with reciprocity, even if offered.

Great stuff everybody, thank you. I look forward to the Canadian media getting on board, that would surely help. In my letter to the Department of Finance I insisted that a request for input on an IGA would require an adequate effort on their part to reach all Canadians with the issue.

Great point @bubblebustin re insisting that “request for input on an IGA would require an adequate effort on their part to reach all Canadians with the issue“. An obscure notice on the Canadian government site does not constitute notice – especially given the public silence for many months.

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